Altoona Valve Company’s planned production for the year just ended was 20,000 units. This production level was achieved, and 21,000 units were sold. Other data follow:

Direct material used..................................................... $ 300,000

Direct labor incurred....................................................... 150,000

Fixed manufacturing overhead....................................... 210,000

Variable manufacturing overhead................................... 100,000

Fixed selling and administrative expenses...................... 175,000

Variable selling and administrative expenses................. 52,500

Finished- goods inventory, January 1............................. 2,000 units

The cost per unit remained the same in the current year as in the previous year. There were no work- in-process inventories at the beginning or end of the year.

Required:

1. What would be Altoona Valve Company’s finished- goods inventory cost on December 31 under the variable-costing method?

2. Which costing method, absorption or variable costing, would show a higher operating income for the year? By what amount?

(CMA, adapted)